Prosper – A Microlending Model for Everyone?

Hi! This is Megan from Zopa. I came across your entry, and thought I would drop a quick line to let you know about Zopa (www.zopa.com), which is the pioneer of the p2p financial services/lending space, so you could have a complete picture of the space/players. I also wanted to address some of Irma’s concerns:



Skinny on Zopa:


Zopa launched in the UK in March 2005 with a service that enables individuals to lend and borrow directly, rather than going through a bank. The point: lower interest rates for borrowers, better returns for investors and the ability for both parties (if they want) to feel their money is doing something other than serving the likes of banks - instead it's people interfacing with people, in a real way. We’re opening the service up to the US market in 2nd Quarter, 2006, and our US team (which I’m a member of) is presently based out of San Francisco. Although Prosper and Zopa are technically in the same space, there are key differences between the models that, I believe, make Zopa a simpler place for lenders:




Differences between Zopa & Prosper:


While there are many here, 2 big ones are (1) risk diversification models & (2) credit check procedures:<ul>
(1) Risk Diversification: By default, Prosper relies on lenders manually searching and selecting each borrower they want to allocate funds to. Also, the lender is (by default) responsible for managing their own diversification to hedge risk. In contrast, Zopa automates the entire risk diversification process. We divide up lenders’ funds over 50 borrowers so your investment automatically gets matched with borrowers based on criteria you specify. You can choose to override the automated risk diversification if you’d like.</ul>




(2) Credit Checks: Behind the scenes, Zopa also carries out extensive credit checks on prospective borrowers before we approve individuals for loans. We get the impression that Prosper does not do this.



We're pretty confident that our credit and risk management procedures are working very well - so far we've had no bad debt to write off (some missed payments, but they're back on track). In sum, we think the Zopa model is simpler for lenders and borrowers, and we're investigating lots of other growth options for lenders.




If you have ideas you’d like to share or general questions, please drop me an email (megan [AT] zopa [DOT] com).

Oh goodness.
I like the idea in principle. But have you seen what the borrowers are trying to finance? I was hoping to see a bunch of folks looking for seed money to get a business off the ground--very much in the spirit of the kinds of microlending that enabled people to climb out of poverty in Bangladesh. But instead, we have a Washington mother of five looking for $6,000 for a boob job! An Illinois woman looking for $17,000 to rennovate her second home in order to resell it. (If that's such a good proposition, why doesn't her bank underwrite her?) A Texas family looking for $25,000 to buy a vacation home. It's not exactly inspiring.
Prosper.com might yet prove to be a good business proposition. But when an overwhelming majority of the borrowers are looking to pay off credit card debt, you have to wonder: Why are they going to be any better at paying me (if I lend them money) than they are at paying back their credit card companies?